Govt urged to move fast to revamp R&D tax credits

Changes to legislation to improve R&D support for SMEs need to happen faster if firms are going to get the benefit, Enterprise Minister Richard Bruton TD has been warned.

Mazars, the accountants and business consultancy firm, has welcome Bruton’s announcement that he plans to extend and improve tax legislative support to SME-size Irish companies engaged in R&D activities but cautioned it needs to be implemented sooner than the time frame envisaged by the minister.

“The minister has promised to reward companies meeting criteria relating to job creation with an improved and more valuable R&D tax credit,” said Mark G Byrne, head of the Mazars R&D Tax Group.

“This legislation is in urgent need of improvement to ensure that the level and quality of taxation support meets the needs of Irish-based companies, especially Irish-owned SMEs who are engaged in R&D activities."

“My worry is that if the expected improvements are not introduced until the normal December Budget, the financial assistance and support arising may only impact on future R&D tax claims. Companies, especially in the SME sector, need the increase in financial support today, they need to see the impact of these proposed improvements in their financial statements and reporting structures as soon as possible. We urge the minister to bring forward these legislative changes as quickly as possible and to use the forthcoming ‘Jobs Budget’ to do so."

According to Gerry Vahey, tax partner with Mazars, specific legislative changes targeting SME-size companies could have an immediate material effect on their ability to trade, create jobs and make important advances in R&D activity.

Current barriers to R&D investment for SMEs

“Introducing a volume-based R&D tax credit for SMEs would provide an instant and quantifiable reward for investment in qualifying R&D projects – effectively providing a credit which would increase in value as the level of R&D expenditure grows or where a proven increase in associated employment could be determined."

“Companies, in our view, would also benefit significantly if they had access to the full payable tax credit or refund immediately – as current legislation stands, this refund is effectively watered down to 33pc increments over a three-year period. This is a significant barrier to many claimants whose R&D tax credit might be nominal, in the broader scheme of things, but in reality are the very type of company that would benefit most from any kind of cash-flow improvement," he said.

Mazars is also calling for the eradication of the base year constraint entirely for claimants in the SME sector.

“The 2003 base year is a stand-out factor in a significant number of indigenous Irish SME companies being excluded from enjoying the benefits of R&D tax support.

“These companies are long-standing employers and tax contributors to the Irish State and are involved in a continuous programme of qualifying R&D activity but by definition of being strong and viable since 2003 they are now excluded from claiming as their R&D investment is in many cases not in excess of their like for like spend in 2003," said Byrne.

According to Byrne, the minister should also give serious consideration to increasing the percentage claimable for qualifying companies in the SME market to at least 30pc.

The R&D tax credit currently stands at a respectable 25pc of incremental and qualifying expenditure when compared to similar expenditure in the 2003 base year. Such an increase could be tied to measurable increases in employment, which would, of course, result in increased income and PAYE/PRSI tax take for the State.